After World War II most colonies managed to free themselves from foreign rule and gained independence. The development of their economy required large investments, which these countries could not finance easily through their meagre exports (mainly agricultural produce and raw materials).
In the 1970s the oil producing countries, which had taken possession of their oil, began to control the oil price and received significantly higher incomes. They invested the gain in the banking houses of the developed world. Faced with a glut in liquid reserves, the banks offered Third World countries huge development loans.
When the prices for agricultural products and raw materials fell in the next economic crisis the Third World countries were locked into high repayments in hard currency, which they could no longer obtain. They progressively got into a situation where much needed resources are today used up to repay the loans. The World Development Report for 1997 classified 41 countries as being heavily indebted, on the criteria that their value of debt to exports was higher than 220 percent or that they had to use more than 80 percent of their gross national product for debt repayment.
Because countries cannot declare themselves bankrupt like private companies, lending poor countries money is a safe way to receive good returns for long periods of time. Occasionally debt has to be rescheduled, but there are always people whose work can be appropriated for repayments. If the financial situation gets very tight development aid given by the rich countries is used to cover repayments, which means that the banks can then draw on the work of the people in the "donor countries" as well. (Between 1988 and 1993 the amount of development aid used for debt repayment increased tenfold; New Internationalist no. 285, November 1996.)
Total Third World debt in adjusted 1993 dollars.
(Wener and Sanders, 1997)
Average percentage of gross national product used
to service Third World debt (Wener and Sanders, 1997)
Wener, D. and D. Sanders (1997) The Politics of Primary Health Care and Child Survival, Health Wrights, California.